Court Orders Coinbase to Turn over Cryptocurrency User Data to IRS

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Yesterday, a U.S. District Court in San Francisco ordered Bitcoin service provider Coinbase to comply with a dramatically scaled-back Internal Revenue Service summons for user information. CEI participated in the case by filing an amicus brief urging the court to recognize the property-based privacy interest Coinbase users have in their data.

Judge Corley was kind to the IRS in finding that the summons was not an abuse of process. The IRS’s initial demand was voraciously over-broad, and the agency pressed it for eight months. Once it became clear that the court wasn’t going to reward its aggressive pursuit of millions of innocent Americans’ private financial account and transaction records, the IRS pared its request back dramatically. The court granted the IRS access to even less information than that.

Coinbase is deciding what to do next, but they have said that they will notify affected users before any data goes to the IRS. In a blog post published yesterday, the company said, “In the event that we ultimately produce the documents under this Court order, we intend to notify impacted users in advance of any disclosure.” That will be an important opportunity for Coinbase users to object, which is their due.

One thing this case has revealed is that the “John Doe” summons procedure may have Due Process problems. At the time it was written, notice to an otherwise unidentified “group or class of persons” whose information stands to be turned over to the IRS may have been very burdensome. It would take a great deal of effort and expense to use paper records to create mailings going to all affected parties.

But the availability of data processing and email notification changes the calculation. In many circumstances, it will not be terribly costly to let people know that the IRS has made a special request for their data. The John Doe summons procedure fails to require reasonable notice to affected parties, denying them the right to participate in proceedings that will dispose of their data and financial privacy.

We’ll be following the developments in this case. Meanwhile, if not the court in this case, Congress should revisit the law to protect privacy and due process in IRS investigations, which clearly can range quite broadly.